alleryStart learning →An investor holds a stock and buys an option to sell it at a set price. What is the cost of this hedge?
AThe option premium
BA margin call
CThe VaR charge
DA credit spread
Answer & Solution
Correct answer: A. The option premium
Buying the protective option limits downside but costs the premium paid for the option.
Keep practising Risk Management
Browse all Risk Management questions for CA Final, or explore more Strategicfinancialmanagement topics.
Related questions
What does an option give its buyer?Which contract is standardized in terms of asset, quantity, price and date?What is hedging?What went wrong with diversification in the late-2000s recession?Diversification benefits increase when the correlation between assets is what?Who initiated modern portfolio theory in 1952 with the thesis "Portfolio Selection"?In modern portfolio theory, how is the risk of a portfolio defined?Which two types of liquidity risk are distinguished?